Importance of Market Measurement and Forecasting

The Importance of Market Measurement and Forecasting

The Importance of Market Measurement and Forecasting:

The main goal of market measurement and forecasting is to serve as an aid in the decisions that marketing management has to make. As has already been emphasized, the quality of decisions cannot be better than the information they are based on. Information gathered enables marketing management to make their decisions in a more objective and scientific manner and to lessen the risk and uncertainty that accompany subjective decisions and guesswork.

Naturally marketing management often make decisions which are not very important and/or do not hold a great risk. It would be ridiculous to arrange for the gathering of information by means of measurement and forecasting for all such small decisions of this nature. Thus it must be emphasized that just as with market research, the importance and risk of the decision must be weighed up against the cost and time involved in the gathering and processing of information.

Luckily there are various secondary sources which contain information regarding market measurement and forecasting. These sources include various published research reports which can be bought at a fraction of the price of a new market research project, and other sources which, for example, are available on computer and can be processed for clients’ needs.

You have probably often heard of the concept “market potential”. In marketing terms this means the maximum potential demand for a certain product in a specific market as a whole. Market potential is relevant to a specific geographical area, a specific period of time, specific types of products, a specific market segment, and is expressed in terms of all of these. Another concept that is relatively seldom used in colloquial language is “sales potential”, which pertains to the maximum demand for a firm’s product. Sales potential, in the same way as market potential, pertains to a specific geographical area, period, and market segment.

Sales potential, however, does not pertain to the types of products a firm deals with, but to a specific product (brand) of the firm. Potential market share is the difference between market potential and sales potential and actually gives an indication of which part of the potential market the firm expects to gain. Market potential, sales potential and potential market share can pertain either to the present and/or the future. A firm strives to enjoy its sales potential to the full.

Market measurement and forecasting, however, are not only relevant to potential demand, but also to actual present and future sales.

The actual sales of a type of product in a specific area, period and market segment can also be called the effective demand. The market share of one of a firm’s products is calculated by the ratio of the actual sales of the product concerned to the actual sales in terms of that type of product. This ratio is expressed as a percentage. You have now learned the meaning of a few elementary concepts in terms of market measurement and forecasting. The marketer can compare these measurements to each other to gain insight into an important indicator of the success of the market offering in relation to other firms, the total market and the market potential.

When you hear the management of market measurement and forecasting being expressed, by this stage you will already realize that it pertains to the planning, implementation and control of the market measurement and forecasting activities. Just as with any other scientific research, measurement and forecasting must be approached in a systematic and planned fashion to obtain the best value. Several steps can be mentioned for approaching market measurement and forecasting.

  • Describe the problem and information needs: Seeing that it is very expensive to gather information, this step must be very carefully planned. The problem about which information should be gathered must be very clearly defined. Definition of the problem will determine which information must be clearly acquired so that only relevant data is gathered.
  • Gathering relevant information: Gathering information serves a dual purpose. Firstly, it provides sufficient data for the information need that is required to solve a problem, and secondly, it serves as a basis for the choice of particular methods of measurement and/or forecasting that are to be used.
  • Selecting the methods of market measurement and forecasting: The choice of measurement and forecasting methods begins with the evaluation of the data that has  been gathered. There must be sufficient data of the right quality to provide a satisfactory answer to the problem by means of existing methods of analysis. Thereafter a suitable method can be selected by comparing the information needed and the abilities of the methods to meet the needs.

The method is selected by taking the following factors into account:

  • The nature and availability of data. Is there sufficient data of the right nature that can be processed with the help of the specific method? What pattern does the data follow? Certain methods of forecasting can only handle some data patterns effectively. The following patterns can appear in the data: tendencies, seasonal fluctuations and conjuncture patterns (the flowing together of brands).
  • The accuracy that is required for decision making is influenced by the choice of methods, as some methods supply a much more accurate answer than others.
  • Costs play a role here, in the same way as they do in most business activities. Just as in the case of marketing research, the costs involved in the chosen method must be weighed up against the accuracy and importance of the required information. Some methods are able to deliver very reliable information, but at extra cost and time.
  • Time: Careful consideration is necessary in deciding whether the period of time needed for measurement or forecasting will provide the desired result. Furthermore, the application of certain methods takes much more time than others.
  • Application: The results must be useful to the people who have to base their decisions thereon. This means that the results must be of a nature that will enable these people to interpret and understand it effectively.

Key Terms in Forecasting:

There are a few terms which are commonly used in forecasting exercise:

  • Market
  • Potential Market
  • Target Market
  • Market Penetration
  • Market Potential

The three aspects involved in defining market potential include:

  • Defined Market Environment
  • Marketing Expenditure by the industry
  • Market Demand